FHA Down Payments to Increase

Yesterday, the President signed into effect the Housing and Economic Recovery Act of 2008.  One of the key changes in this act is the immediate increase in down payments from 3% to 3.5% for anyone using FHA financing.  With drastic changes in the mortgage industry and the death of 100% lending, FHA has once again become a very popular way for many home buyers (especially first time home buyers) to finance their home purchases. 

What Does This Mean for Home Buyers?

For the average home sale on the West Bank of about $175,000, the minimum down payment required for FHA financing has increased from $5,250 to $6,125.  Additionally, the new act has done away with seller funded down payment assistance programs such as AmeriDream and Nehemiah as of October 1, 2008.  Down payment gifts will no longer be able to be provided by the seller in any way, but can continue to be provided by family, churches or other non-profits and employers.  As always, saving for a home and having cash reserves for emergencies continues to be the most prudent path for potential buyers.

What Does This Mean for Home Sellers?

Whenever buyers have to come up with more cash to get to closing, some of them will be knocked out of the market for a period of time or will have to purchase a less expensive home.  The pool of qualified buyers for homes falling within FHA guidelines just shrank overnight as it will take time for many of those buyers to save the additional funds needed for the new down payment guidelines.  If you have an accepted offer on your home that includes a seller funded down payment, your agent needs to follow up on the status of the buyers finances right away.

There are other changes legislated by the Act, but in my mind these are the most significant and will have the most immediate impact on our local West Bank housing market.  I’m not sure that the increase in the down payments are necessarily a negative, since many of the foreclosures are a result of buyers with no money to invest in a property getting in over their heads and then going through the trauma of losing their homes.  I’d rather see someone wait a little longer and be financially comfortable with their mortgage payments than to face foreclosure down the road.

For more information on FHA loans, contact Lisa Heindel.  I have a trusted team of mortgage professionals that can explain the ins and out to you.

Copyright 2008.  All rights reserved.  Lisa Heindel/West Bank Living